Dueling Fools Dueling Fools
March 25, 1998

N2K: Tune In or Tune Out?

You may not know N2K (Nasdaq: NTKI), but if the world's fastest growing online music merchant has its way, you probably will -- and soon. The company behind Music Boulevard and other music-related websites that feed into the pre-recorded CD storefront is hot on the path of niche leader CDnow (Nasdaq: CDNW).

Music to a Foolish ear? Perhaps. This week we have a pair of Fools playing different arrangements. Louis Corrigan (TMF Seymor) sees booming sales growth, but Rick Munarriz (TMF Edible) frets over margins and competition.

Pump up the volume and dig in. These Duelists go to eleven.

You Get to Vote!

After reading all of the arguments, cast your vote for the winner of the Duel. We'll tabulate results each week and revisit them from time to time to see whether you were right! As always, we invite you to join us in the N2K Message board to continue the duel.

[Any suggestions, comments, praise, or flames, please send them along to the Dueling Fools Team.]

The Bull...
Sure, call it Internet-a-gaga. The recipe seems simple. Throw together an Internet business selling just about anything. Select from the crew of investment bankers hankering to take you public. Use the cash to sign multimillion dollar leases for key online real estate. Then watch your stock get caught up in the hype along with the Amazon.coms (Nasdaq: AMZN) and America Onlines (NYSE: AOL) of the world. And just pray the bubble doesn't burst before you get a chance to sell more shares for "estate planning purposes." The spice to the recipe? No, not Ginger. How about... convince investors that current earnings don't matter -- and neither do current sales. Now that's scary.
Continue...
The Bear...
Let me start with the ugly, because, believe me, things get even uglier. Last year N2K lost $28.7 million on sales of just $11.3 million. Growing pains? Hardly. Music Boulevard is a one-way street -- paved in red and heading downhill.

"Cute Rick, but e-commerce is huge and N2K is going to make a ton of money." When? I have every reason to believe that sales will continue to rise. I do. Yet the company is years away from breaking even and I'll show my math. Recorded music falls victim to razor thin margins. In N2K's case, last quarter gross margins were a mere 9%. Operating expenses were a whopping $13.3 million.
Continue...

Results for last week's Oracle Duel

Answer Percentage
I can't make up my mind

5%

TMF Bogey's Bull argument

53%

TMF Cinder's Bear argument

28%

They were both excellent

10%

They were both lame

4%

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